5 Best Stocks To Buy According To Market Beating Hedge Fund

2016 was rough for the hedge fund industry in terms of redemptions, as it suffered a money exodus due to rising investor frustration amid low returns, unjustifiably high fees, and insider trading scandals. Hedge funds have had a positive year, gaining 4% in 2016, thought his lagged the S&P 500 Index, which is up by about 9% for the year. Yet a few hedge funds managed to beat the market with their sterling performance and smart moves. One such hedge fund was Owl Creek Asset Management, which is run by Jeffrey Altman. The fund returned an impressive 14.5% in 2016 through December 20, pushing the New York-based hedge fund’s 13F portfolio assets to a value of $2.31 billion. Owl Creek’s excellent performance this year calls for a detailed look at its top stock picks heading into this quarter, which we’ll do below.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Yahoo Inc. (NASDAQ:YHOO)

Owl Creek upped its stake in Yahoo by 4% in the third quarter, ending the period with over 15.77 million shares of the company, which had a net worth of $679.74 million. On Monday, financial services company Evercore ISI reaffirmed its ‘Hold’ rating on Yahoo Inc. (NASDAQ:YHOO) and has a price target of $39 on it. The stock is up by over 16% year-to-date. Verizon Communications Inc. (NYSE:VZ) entered into an agreement to acquire Yahoo’s internet assets for $4.8 billion earlier this year, but the deal could now be jeopardy amid Yahoo’s admission that around 1 billion of its user accounts were hacked in 2013 and 2014. Verizon is reportedly looking into the matter so as to ultimately ask for a concession in the deal or termination the contract entirely. Joshua Friedman and Mitchell Julis’ Canyon Capital Advisors owns 20.80 million shares of Yahoo Inc. (NASDAQ:YHOO) as of the end of the third quarter.

HCA Holdings Inc (NYSE:HCA)

Owl Creek reported ownership of 1.15 million HCA Holdings Inc (NYSE:HCA) as of the end of the third quarter, with the total value of the shares coming in at $87.36 million. The shares of the Tennessee-based healthcare facilities operator have gained over 10% in value since the start of the year. Last month, HCA Holdings’ Board of Directors authorized a $2 billion stock repurchase program. For the full-year, HCA Holdings expects its EPS to come in at between $6.50 and $6.80, versus the consensus of $6.58, while revenue for the period is estimated to come in at between $41 billion and $42 billion, versus analysts’ estimate of $41.8 billion. A total of 62 hedge funds tracked by Insider Monkey were long HCA Holdings Inc (NYSE:HCA) at the end of the third quarter.

On the next page we’ll discuss the rest of the top stock picks of Owl Creek at the end of the third quarter.

CIT Group Inc. (NYSE:CIT)

Owl Creek increased its holding in CIT Group Inc. (NYSE:CIT) by 32% in the third quarter, entering the final quarter of 2016 with a total of 2.36 million shares of the company worth $85.66 million. The stock is up by over 10% year-to-date. Last month, BMO Capital downgraded the New Jersey-based commercial banking company to ‘Underperform’ from ‘Market Perform’, with a price target of $33. On December 2, CIT announced that Steven T. Mnuchin resigned from the company’s Board of Directors after President-elect Donald Trump revealed his intention to nominate Mnuchin as the next Secretary of the Treasury. Robert Rodriguez and Steven Romick’s First Pacific Advisors owns 14.42 million shares of CIT Group Inc. (NYSE:CIT) as of the end of the third quarter.

Herbalife Ltd. (NYSE:HLF)

Owl Creek Asset Management lowered its stake in Herbalife Ltd. (NYSE:HLF) by 23% in the third quarter, ending the period with a total of 1.32 million shares of the company valued at $81.64 million. Investors are closely watching Herbalife after President-elect Donald Trump named billionaire and activist investor Carl Icahn as special advisor to the President on regulatory reform. The 80-year-old investor has a 23% stake in the nutritional supplements company, which recently reached a $200 million settlement with the FTC over accusations of fraudulent practices. The stock is down by over 8% year-to-date. Of the 742 funds tracked by Insider Monkey which filed 13Fs for the September quarter, 44 were bullish on Herbalife Ltd. (NYSE:HLF) on September 30.

Vereit Inc (NYSE:VER)

There were 5.92 million Vereit Inc (NYSE:VER) shares in Owl Creek’s portfolio at the end of the third quarter, after the fund added 120,200 shares of the real estate operating company to its position during the quarter. That pushed the value of the fund’s stake in the company to $61.45 million. Earlier this month, JPMorgan upgraded Vereit to ‘Overweight’ from ‘Neutral’, and has a price target of $11 on it. The company expects full-year 2016 FFO (Funds from Operations) of $0.75 to $0.78, beneath its previous guidance of $0.75 to $0.80. Matthew Barrett’s Glendon Capital Management owns 6.82 million shares of Vereit Inc (NYSE:VER) as of the end of September.

Disclosure: None